You will have to make several decisions when starting a business. One of the first and most important decisions is choosing the type of business entity that will help you achieve your goals.
With so many options available, it can be difficult to know which choice to make. The following are some things to consider when deciding upon your business structure.
Major factors to keep in mind when forming a business
Every business structure has its own unique advantages and disadvantages. Some entities provide more flexibility while others are more rigid. When considering business formation, you should keep the following factors in mind when considering your business structure:
- Personal liability protection
- Tax liability
- How business decisions will be made
- Compliance burdens
A business formation professional can help with these and other considerations, and help you explore your options.
Common business structures
Some of the most common business entities include:
- Sole proprietorships: This is the simplest type of business structure. The biggest advantage of this type of entity is that you do not have to make any legal filings with the state. It requires little to no maintenance. The major disadvantage is that you will be personally liable for business loans and debts.
- Limited liability partnerships (LLPs): An advantage of an LLP is that it enables you to own a business with multiple people while providing you with personal asset protection. This type of structure also allows for greater tax flexibility. A possible disadvantage is the requirement of holding annual meetings and maintaining proper business records.
- Limited liability corporations (LLCs): LLCs are more flexible than an LLP. An LLC is a great fit for a business that desires the protections afforded to an LLP while dispensing with many of the formal requirements. This may not be the best fit for a business that requires a more formal structure to achieve its peak performance.
Several other options are also available which may better suit your needs, including traditional corporations which may be more attractive to certain investors.
Get started with a solid foundation
Your choice of entity is the foundation of your business and is important to getting started on the right foot. You should carefully consider your options and think about your goals for your business venture.